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Weekly Sterling/Euro forecast & predictions

Monday 16th April 2012Good morning. Today as is usual for a Monday, I’ll take a retrospective look at what happened in the currency markets last week, with a focus on the Pound/Euro exchange rate in addition to the weeks economic data I think will have an effect this week. Will the Pound/Euro rate remain above €1.20?

Last week saw the GBP/EUR rate move to a 19 month high of 1.2160, a mid-market price we haven’t seen since September 2010 and was driven by continued negative data coming out of France, Greece and Spain.

Data and events last week in the Eurozone showed that French manufacturing production declined further, only narrowly avoiding a slip into negative territory whilst social unrest continued in Greece as more strikes at the start of the holiday season seemed destined to halt efforts to get the economy moving again.

Spanish 10-year bond yields remained high, prompting investors to move to the safer heaven currencies of the GBP and USD. Also, Spain’s 10-year yield jumped to 5.99% nearing the levels that prompted Greece, Ireland and Portugal to seek bailouts.

Despite the bad news coming from the Eurozone, there seemed to be little effect on the currency markets. The negative news seems to be priced into the market already; as everyone knows it will not be a quick turnaround for the single currency. This has helped the GBP/EUR exchange rate to keep trading above the 1.21 level on interbank.

Furthermore the Pound was supported and has hit a 13 month high against a trade weighted basket of currencies. Sterling has been helped of late by data showing British retail sales rose in March at the fastest pace this year so far. Retail Sales are a good overall barometer of the UK economic as a whole, and so often have quite a big impact on the value of the Pound. The British Retail Consortium said like-for-like retail sales rose by an annual 1.3%, easily beating expectations of a stagnant performance, hopefully holding off fears of any potential recession for the UK economy.

As with the Euro data, the positive data out of the UK didn’t have much effect on rates as the markets wait to see what effects Q1 GDP figures on Wednesday (25/04) next week will have on the markets. The GDP figures will be very important indeed as they will show whether the UK is back in recession or not. Most analysts say that this is the next key indicator of the UK economy.

So will exchange rates remain above €1.20?

So in summary, the market seems to be fairly stable of late, and has been range-bound around the 1.20 and 1.21 levels for a few weeks now. Moving forwards, with forecasts for the exchange rate varying wildly between €1.14 and €1.25 for the next 3-6 months it’s very hard indeed to know what will happen.

It’s very important to note that despite the stability of late, it’s no guarantee rates will stay at this level. Indeed over the course of the last few years we have breached €1.20 several times, only for a sharp downwards correction to follow. Even if you don’t need your currency for some time, there are tools in place to protect you against adverse movement.

With much uncertainty over the issues in Europe, and of course the possible know on effects of this on the UK, the best course of action is a free consultation with us to discuss your options.

Monday – We start the week with EU Trade Balance figures, which can quite often affect the value of the Euro. UK wise, there is no data released today. Over in the United States we have Retail Sales at lunchtime, followed by Housing market prices in the afternoon.

Tuesday –This morning we have and RBA policy statement which will be interesting as there is talk of an interest rate cut down under, which could push GBP/AUD higher. In the UK we have a host of data including the Consumer Price Index (Inflation), Retail Sales and House Price Data. In Europe the German ZEW survey (confidence measures) will be released at 10am. In the US there is House Price info released at 13:30, along with industrial production figures at the same time.

Wednesday – Unemployment data is the main UK release today, including the claimant count and average earnings measures. In the EU there are Current Account measures which measure the net flow of funds in and out of the Eurozone, so expect some EUR volatility. Later in the day some inflation measures are released from New Zealand.

Thursday – Unusually for a Thursday there are no UK releases today. In the EU there are consumer confidence measures which in the absence of any other EU or UK data could have a bigger impact than normal. In the USA we have Home Sales data and the Philadelphia Manufacturing Survey.

Friday – We end the week with Retail Sales data being released from the UK, which is a good barometer of the economy as a whole. In the Eurozone there are various confidence measures from Germany, which can have a big impact as its Europe’s largest economy. Other than that the rest of the data is from Canada in the form of various measures of inflation.

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